Why Investors Are Reducing AI Exposure
Goldman Sachs • 8 days ago
What This Video Is About
This video features a discussion between Chris Hussey and Rich Privorotsky, Head of European Equities Trading at Goldman Sachs, on the current state of the markets, particularly the unwinding of the dominant trade in AI and the challenges facing the market.
Major Ideas Discussed
- The market is experiencing an unwinding of the pain trade in AI, with a shift away from consensus trades and a focus on the cost of capital, delivery of gigawatts, and increased competition at the model layer.
- Rich identifies three key issues in the market: the cost of capital, questions about the ability to deliver gigawatts, and increased competition at the model layer, leading to a de-risking mentality and downward revisions in growth expectations.
- The third-quarter earnings season is critical, with a focus on hyperscaler numbers, particularly the sustainability of high CapEx levels and continued cloud growth and monetization.
- Rich previously advocated for being long nominal assets, but now believes the market has repriced everything due to concerns about AI spending and its sustainability.
- Credit cycle concerns are increasing, with credit cracks in areas like CCC spreads and sovereign bonds in Europe, particularly with countries running large fiscal deficits.
- Despite the current market messiness, Rich identifies pockets of electrification, aerospace assets, and parts of transports as potentially interesting trades, remaining cautiously optimistic and looking for convexity in trades that have been heavily sold off.
What to Watch Next
Rich is watching for hyperscaler numbers, particularly monetization and CapEx figures, which will be critical for shaping market sentiment and credit demand, as well as the ongoing impact of AI spending and its sustainability on the market.